Is Alpha becoming Beta?

That seems to be the case lately, with a very high correlation between stocks.The WSJ noted the sync between individual names in Component Stocks’ Correlation to S&P 500 at Highest Level Since ‘87 Crash.

Hence, it is not really a “stock pickers market,” as so many know-nothing pundits are trying to tell you.

Jim Bianco blames “Macro Investing” — between ETFs, program trading, and other factors, this leads to increasing degrees of correlation.

I think its more of a sign of indecision, and traders sitting on their hands.

Here is Jim’s chart, showing the correlation between 6 other markets that are trading like SPX:


click for bigger chart

chart courtesy of Bianco Research

Category: Markets, Psychology, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “Highest Single Stock Correlation with S&P500 Since ’87”

  1. NoKidding says:

    Indecision, or certainty.

    The gold bugs and the V-shapes and the Japan-2.0 crowds have already made their bets and are waiting, so their inactive ownership/shortership does not move the market.

    I am personally scared poopless of the next big crash, which might start tomorrow, or might never come.

  2. JustinTheSkeptic says:

    Crash me out…I mean cash me out here.

  3. An interesting data point would be whether this correlation is also seen in the performance of various hedge funds, asset allocators, trendfollowers, actively managed funds, etc…

  4. wally says:

    “I think its more of a sign of indecision, and traders sitting on their hands.”

    It takes a lot of inner confidence to put money into a business that is doing well and is well-managed when you know it could get blown out by things completely unrelated to the workings of the business. The intense focus from all viewpoints from mainstream to small blogs today is macro issues. I have hardly seen any discussion anywhere about strengths or weaknesses of individual companies – Apple and BP probably excepted.

  5. DHSmith says:


    Wouldn’t a higher degree of correlation between stocks mean that correct valuations are not being priced completely into the market? Correct me if I’m wrong, but Treynor Black would argue for higher weighting to the actively managed portfolio when derived values are not reflected in market prices. Thus it would be a stock pickers market.

  6. Joe Retail says:

    Interesting – certainly goes along with the gut feel I’ve been getting based on my own holdings. In what would have been considered in other times a well diversified portfolio, it seems that on any given day it all goes up or it all goes down.

    Following wally’s comment that leaves me doing what little trading I am based in characteristics of individual companies with focus on stability. Right now I’ve stopped caring what “the market” is doing.

  7. jpitt42 says:

    It seems that people are forgetting that somebody has to be left holding the bag for all the bad debt out there. I would think that would ultimately depress some stock prices more than others. Those most depressed would be the bag-holders themselves, or those selling things to the bag-holders.

  8. d4winds says:

    First, perhaps it’s not a ‘stock pickers market’ but your graph does not address that assertion at all. Second,
    There is still considerable diversity in 1-month returns by industry; graphic displays are at

  9. wally says:

    “..somebody has to be left holding the bag for all the bad debt”

    Inflation and deflation make entirely different sets of bagholders.

  10. [...] it’s more of a sign of indecision, and traders sitting on their hands,” Barry Ritholtz writes at The Big [...]

  11. alfred e says:

    Are you saying the correlation may have led to the recent hair trigger crash, or is fueling the next one shortly.

  12. hdoggy says:

    I guess this chart has to change. It all depends on what gives. The long term argument for gold is zero correllation which most people mistake for negative correllation, but now that’s blown. I would guess real estate is a negative correlation asset, but to find the new gold you have to find a zero correlation asset. What might it be? I have to make a guess, out of major asset classes and it’s just a blind man’s guess. I have no data to support my opinion. I’ll say … soybeans. Still a commodity play, but my only guess right now.

  13. Clem Stone says:

    Of course people in the financial services industry need you to believe it’s a stock picker’s market or else they provide no value. Ditto decoupling. Reminds me of the American car industry claiming that “We’ve caught up with the Japanese” every year since 1980. Fool me once, shame on you…fool me 30 times, won’t get fooled the 31st time.

  14. [...] More evidence that EVERYTHING is correlated these days.  (Big Picture) [...]

  15. ivanhoff says:

    Correlation between stocks historically has been very high during periods of severe declines and the ensuing bounces. Correlation between asset classes is a target in constant motion and it tends to revert to the mean.

  16. [...] “Highest single stock correlation with S&P 500 since ‘87″ (The big picture). [...]